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Transforming to a Higher Value Portfolio
March 4, 2014
Raymond James Conference
© 2013 Lexmark International, Inc. All rights reserved.
Safe Harbor Statement
2
The contents of this presentation that are...
© 2013 Lexmark International, Inc. All rights reserved.
Today’s Discussion
3
Transforming to a Higher Value Portfolio
• Le...
© 2013 Lexmark International, Inc. All rights reserved.
Lexmark’s Transformation
Continuing Solutions & Services Investmen...
© 2013 Lexmark International, Inc. All rights reserved.
Solving The Unstructured Information Challenge
5
Explosion of unst...
© 2013 Lexmark International, Inc. All rights reserved.
Internal
Processes
SuppliersCustomers
Employees
Enterprise
Resourc...
© 2013 Lexmark International, Inc. All rights reserved.
World Class Platform, Industry Focused Solutions
7
Perceptive
Capt...
© 2013 Lexmark International, Inc. All rights reserved.
Growing Market For High Value Solutions
Content & Process Manageme...
© 2013 Lexmark International, Inc. All rights reserved.
Growth Synergies
Lexmark’s Unique Value Proposition
Lexmark Well P...
© 2013 Lexmark International, Inc. All rights reserved.
Managed Print Services Leader
Recognized as a Leader*
Healthcare C...
© 2013 Lexmark International, Inc. All rights reserved.
High Value MPS and Software Revenue Growing*
11
Approaching $1 bil...
© 2013 Lexmark International, Inc. All rights reserved.
Perceptive Software Revenue
12
$239
$100
Licenses
Prof. Svc. / Oth...
© 2013 Lexmark International, Inc. All rights reserved.
Capital Allocation Increasing Shareholder Value*
Cash
for
Investme...
© 2013 Lexmark International, Inc. All rights reserved.
Reference Materials
© 2013 Lexmark International, Inc. All rights reserved.
Lexmark Financial Summary*
16
Revenue $1,011 +4% $3,684 -3%
Gross ...
© 2013 Lexmark International, Inc. All rights reserved.
Segment Financial Summaries*
17
ISS 4Q13 YTY FY13 YTY
Revenue $939...
© 2013 Lexmark International, Inc. All rights reserved.
4Q12 1Q13 2Q13 3Q13 4Q13
Receivables 49 50 54 49 41
Inventory 39 4...
© 2013 Lexmark International, Inc. All rights reserved.
Deferred Software Revenue
1Q13 2Q13 3Q13
Non-GAAP 4Q12 1Q13 2Q13 3...
© 2013 Lexmark International, Inc. All rights reserved.
2014 Revenue Assumption*
20* Non-GAAP, bar chart depicts percentag...
© 2013 Lexmark International, Inc. All rights reserved.
2014 Outlook / Assumptions
21
Revenue(1)(2) -3% to -5% YTY
Up Slig...
© 2013 Lexmark International, Inc. All rights reserved.
-$0.20
* Non-GAAP, totals may not foot due to rounding.
EPS Range:...
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Lexmark Presentation slides from raymond james conference (March 14)

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Datapoints from 3/4/14 Lexmark Presentation

View Content, Process, and Output Management Markets as $80B TAM
See Content & Process Management growing at ~10% CAGR
See Output Management as flattish, with MPS and Fleet solutions growing double digits, while hardware is expected to decline
Lexmark expects their software and MPS businesses combined to grow 15% in 2014
Targeting Perceptive Software to grow to $500mm by 2016 (2013 revs were $239mm) at 25% operating margins
Organic growth of 15% in addition to growth through acquisition
MPS business had 100% renewal rate in 2013

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Transcript of "Lexmark Presentation slides from raymond james conference (March 14)"

  1. 1. Transforming to a Higher Value Portfolio March 4, 2014 Raymond James Conference
  2. 2. © 2013 Lexmark International, Inc. All rights reserved. Safe Harbor Statement 2 The contents of this presentation that are not statements of historical fact are forward-looking statements and involve risks and uncertainties that are discussed in the Safe Harbor section of our earnings releases and SEC filings. Actual results may differ materially from such statements. Lexmark undertakes no obligation to update any forward-looking statements. This presentation contains non-GAAP financial measures, unless otherwise noted. Lexmark has provided reconciliations of GAAP to non-GAAP financial measures and a discussion of management’s use of non-GAAP financial measures in the GAAP to Non-GAAP section of its earnings slide deck.
  3. 3. © 2013 Lexmark International, Inc. All rights reserved. Today’s Discussion 3 Transforming to a Higher Value Portfolio • Lexmark focused on solving the unstructured information challenge • Market for high value solutions and software increasing • Lexmark well positioned to increase participation in high value markets • Lexmark solutions and software experiencing rapid growth Creating Shareholder Value • 5 consecutive years achieving a record gross profit margin percentage • 12 consecutive years of positive free cash flow • Building and growing solutions business through expansion and acquisitions • Returning >50% of free cash flow to shareholders through dividends and share repurchases on average
  4. 4. © 2013 Lexmark International, Inc. All rights reserved. Lexmark’s Transformation Continuing Solutions & Services Investments • Smart MFP Solutions • Managed Print Solutions & Services End-to-End Solutions ProviderGoal 2007 201320102007 2010 2014 Software Acquisitions Perceptive Software Pallas Athena Brainware Isys Nolij Acuo AccessVia Twistage Saperion Pacsgear Exited Consumer Inkjet Exited Business Inkjet Sold 2Q13 4
  5. 5. © 2013 Lexmark International, Inc. All rights reserved. Solving The Unstructured Information Challenge 5 Explosion of unstructured information is both digital and paper-based  Digital: word processing/spreadsheet files, email, chat/social messaging, and rich file types like images, audio and video  Paper-based: mail, memos, notes and more buried in mailrooms, filing cabinets and stacks of folders Lexmark is uniquely focused on … with the processes, applications and people that need it most. Connecting the unstructured printed and digital information across the enterprise The explosion of content outside your enterprise applications disconnects people from the information they need most, hindering the accurate and timely completion of processes.
  6. 6. © 2013 Lexmark International, Inc. All rights reserved. Internal Processes SuppliersCustomers Employees Enterprise Resource Planning Human Resources Information System Customer Relationship Management Enterprise Systems: Where We Fit 6 ERP CRM HRIS EMR Healthcare SIS Education
  7. 7. © 2013 Lexmark International, Inc. All rights reserved. World Class Platform, Industry Focused Solutions 7 Perceptive Capture Multichannel capture Document capture Rich media capture Intelligent capture Perceptive Content Document management Rich media management Records and information management Document composition Perceptive Process Workflow Case management Electronic signatures Process mining Process modeling & analytics Perceptive Search Federated search Fault-tolerant search Data loss prevention Document filters Managed Print Solutions Workflow-enabled Fleet insight Industry-specific unstructured content, process & output solutions Government EducationBanking HealthcareInsuranceManufacturingRetail Back Office Content and Process Management Software PlatformOutput Management Platform
  8. 8. © 2013 Lexmark International, Inc. All rights reserved. Growing Market For High Value Solutions Content & Process Management Enterprise Content Business Process Document Output Vendor Neutral Archive Output Management Laser Hardware, Supplies, Services ~$80B Expected to grow at ~10% CAGR Source: Industry sources, public information, and other internal and external sources 8 ~$10B ~$70B MPS and Fleet Solutions expected to grow at double-digit rate Non-MPS expected to decline 8
  9. 9. © 2013 Lexmark International, Inc. All rights reserved. Growth Synergies Lexmark’s Unique Value Proposition Lexmark Well Positioned in Growth Markets 9 Imaging Solutions Perceptive Software Solutions Key Technology Ownership Deeper Industry Experience Superior Customer Intimacy
  10. 10. © 2013 Lexmark International, Inc. All rights reserved. Managed Print Services Leader Recognized as a Leader* Healthcare Content Software Leader * See footnote slide 10 Enterprise Content Management Leader Smart MFP Leader Output Management Content & Process Management NewAgain
  11. 11. © 2013 Lexmark International, Inc. All rights reserved. High Value MPS and Software Revenue Growing* 11 Approaching $1 billion 26% of total revenue in 2013 Expected to grow by about 15% in 2014 $786 $961 $683 Perceptive Software Managed Print Services *Non-GAAP, in millions, totals may not foot due to rounding ‘11/’13 CAGR +19%
  12. 12. © 2013 Lexmark International, Inc. All rights reserved. Perceptive Software Revenue 12 $239 $100 Licenses Prof. Svc. / Other Subscriptions Maintenance $162 Grew 48% in 2013 Expected to grow to $500 Million in 2016 Targeting ~25% operating income margin by end of 2016 *Non-GAAP, in millions, totals may not foot due to rounding
  13. 13. © 2013 Lexmark International, Inc. All rights reserved. Capital Allocation Increasing Shareholder Value* Cash for Investment Return to Shareholders >50%<50% Long Term Assumption: Return >50% on Average through Dividends & Repurchases Strengthen & Grow Capabilities Perceptive Software Pallas Athena Brainware ISYS Nolij Acuo Twistage AccessVia Saperion Pacsgear ~90% to 100% of Non-GAAP Net Income 13 Free Cash Flow 1Q11 To 4Q13 Free Cash Flow $694 $798 Share Repurchase Dividends Acquisitions Return of Capital Invested > $725 Since 2010 Returned 87% of Free Cash Flow 2011-2013 *In millions, totals may not foot due to rounding
  14. 14. © 2013 Lexmark International, Inc. All rights reserved.
  15. 15. Reference Materials
  16. 16. © 2013 Lexmark International, Inc. All rights reserved. Lexmark Financial Summary* 16 Revenue $1,011 +4% $3,684 -3% Gross Profit Margin 41.4% +5.2 pts 40.7% +1.6 pts Operating Expense $307 +$38 $1,098 +$12 R&D $87 +$3 $322 -$38 SG&A $219 +$35 $775 +$50 Operating Income $112 +$31 $403 +$2 ISS $197 +$41 $701 +$7 Perceptive $2 +$9 -$2 +$23 All Other -$86 -$19 -$297 -$28 Operating Income Margin 11.1% +2.7 pts 10.9% +0.4 pts Net Earnings $75 +$30 $269 +$6 Tax Rate 27.4% -13.0 pts 26.4% -2.9 pts EPS $1.18 +$0.50 $4.19 +$0.41 * Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted 4Q13 YTY FY13 YTY
  17. 17. © 2013 Lexmark International, Inc. All rights reserved. Segment Financial Summaries* 17 ISS 4Q13 YTY FY13 YTY Revenue $939 +1% $3,444 -5% Laser $839 +8% $3,039 +1% MPS $208 +22% $722 +16% Non-MPS $631 +4% $2,317 -3% Inkjet Exit $100 -32% $405 -37% Gross Profit Margin 40.4% +4.6 pts 39.9% +1.0 pts Operating Expense $182 +$7 $671 -$49 R&D $67 +1% $241 -16% SG&A $115 +6% $431 -1% Operating Income $197 +$41 $701 +$7 Operating Income Margin 21.0% +4.1 pts 20.4% +1.3 pts Perceptive Software 4Q13 YTY FY13 YTY Revenue $72 +70% $239 +48% Licenses $23 +97% $78 +59% Subscriptions $7 +178% $24 +209% Maintenance $24 +49% $79 +34% Professional Services / Other $18 +49% $58 +28% Gross Profit Margin 73.4% +6.4 pts 72.3% +3.1 pts Operating Expense $51 +$16 $175 +$39 R&D $16 +23% $58 +22% SG&A $35 +56% $117 +32% Operating Income $2 +$9 -$2 +$23 Operating Income Margin 2.6% +18.9 pts -0.8% +14.6 pts * Non-GAAP, totals may not foot due to rounding, in millions unless otherwise noted
  18. 18. © 2013 Lexmark International, Inc. All rights reserved. 4Q12 1Q13 2Q13 3Q13 4Q13 Receivables 49 50 54 49 41 Inventory 39 45 45 49 41 Payables 72 77 79 80 73 Cash Conversion1 16 18 19 18 9 Balance Sheet and Cash Flow1 18 4Q13) Cash2 $1,055) U.S. Cash $40) Non-U.S. Cash $1,014) 4Q13 YTD) Cash from Operations3 $205) $474) Free Cash Flow4 $164) $308) Depreciation & Amortization5 $67) $250) Capital Expenditures $41) $167) Cash Provided By or (Used For) A/R $38) $78) Inventory $28) $7) A/P ($10) ($38) (1) GAAP, totals may not foot due to rounding, in millions unless otherwise noted (2) Includes current short-term marketable securities (3) Net cash provided by operating activities (4) Free cash flow = cash from operations – capital expenditures + proceeds from the sale of fixed assets (5) Includes $21 million and $69 million for non-GAAP adjustments in 4Q13 and YTD, respectively • Cash Conversion Cycle Improved 9 days sequentially, 7 days YTY • Strong Liquidity Position with $1.1B Cash2, $350M Revolver, $125M A/R Program • Maintaining an Investment Grade Debt Rating Long Term Debt $700 5.125%, Due 2020 $400 6.650%, Due 2018 $300 Highlights Balance Sheet & Cash Flow Cash Conversion Days Long Term Debt
  19. 19. © 2013 Lexmark International, Inc. All rights reserved. Deferred Software Revenue 1Q13 2Q13 3Q13 Non-GAAP 4Q12 1Q13 2Q13 3Q13 4Q13 Ending Balance $69 $69 $72 $87 $93 GAAP 4Q12 1Q13 2Q13 3Q13 4Q13 Ending Balance $55 $56 $63 $72 $82 * Totals may not foot due to rounding, in millions 19
  20. 20. © 2013 Lexmark International, Inc. All rights reserved. 2014 Revenue Assumption* 20* Non-GAAP, bar chart depicts percentage of total revenue, totals may not foot due to rounding Overall Revenue Inkjet Exit Lexmark Consumer + Business Inkjet Hardware & Supplies Non-MPS MPS 2013 $3.7B Perceptive Software Solutions Imaging Solutions Hardware, Supplies, Software, Services -4% Year to Year Inkjet Exit Imaging Solutions + Perceptive Software MPS + Perceptive Software 2013 Up 4% Up 22% Down 37% ~11% of Revenue Inkjet Exit Imaging Solutions + Perceptive Software MPS + Perceptive Software Up Slightly Up about 15% Down >40% ~6% of Revenue 2014 -3% -3% to -5% $0.4B $2.3B $0.7B $0.2B
  21. 21. © 2013 Lexmark International, Inc. All rights reserved. 2014 Outlook / Assumptions 21 Revenue(1)(2) -3% to -5% YTY Up Slightly YTY ex. IJ Exit Gross Profit Margin%(1) Increase Operating Expense(1) Lower FY14 Tax Rate ~29% EPS(1)(2) $3.80 - $4.00 Free Cash Flow Low end of 90%-100% NI(1) Capital Spending ~$150 Million Depreciation ~$235 Million(3) Pension Funding ~$35 Million (Cash) (1) Non-GAAP (2) Based on foreign currency exchange rates as of 12/31/13 (3) Includes approximately $75 million of restructuring ($3 million) and acquisition-related adjustments ($72 million) • FY14 revenue decline of 3% to 5% YTY unfavorably impacted 5% by Inkjet Exit − Laser + Perceptive revenue expected to grow slightly − MPS + Perceptive Software revenue expected to grow ~15% YTY • FY14 operating income expected to be near the low end of the 11% - 13% longer term target range − Expect Perceptive Software to deliver significant operating income expansion in FY14 − FY14 benefit from pension accounting change is reduced by approximately $13M YTY FY14 Assumptions
  22. 22. © 2013 Lexmark International, Inc. All rights reserved. -$0.20 * Non-GAAP, totals may not foot due to rounding. EPS Range: $3.80 - $4.00 Tax / Other +$0.11 2013 EPS $4.19 -$0.20Operations Performance $3.90 Tax Impact / Lower Outstanding Shares Lower Average Shares Outstanding Midpoint of 2014 EPS Guidance Range - Inkjet Exit + Laser Margin Improvement + Perceptive Software Growth / Margin Expansion + Expense Reductions Assumes Tax Rate of ~29% in 2014 compared to 26.4% in 2013 22 Bridge of 2013 to 2014 EPS Guidance Ongoing Share Repurchases 2014 EPS* Guidance YTY Change
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